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Trends in Information Technology Law: Looking Ahead to 2013

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Introduction

2012 was the year when the IT changes we’re living through, and where they might lead, became much plainer to see.  In its ‘Global Trends 2030: Alternative Worlds’ report aimed at stimulating thought about possible global trajectories during the next 15 to 20 years published on 10 December, the US National Intelligence Council characterised the role of IT as one of a number of ‘game-changers’:

“Information technology is entering the big data era. Process power and data storage are becoming almost free; networks and the cloud will provide global access and pervasive services; social media and cybersecurity will be large new markets. This growth and diffusion will present significant challenges for governments and societies, which must find ways to capture the benefits of new IT technologies …”[1]


IT changes: (1) - scale

IT law developments next year will continue to follow in the wash of evolution information technology itself, where two key words are scale and nexus.

Just to take mobile and the Internet[2]:

  • in 2012 there were 2.5bn Internet users (1/3rd of the 7bn global population) and 1.1bn smartphone users (42% growth in Q4 2012 over Q4 2011 but still only around 1/5th of total mobile phone users);
     
  • mobile monetisation (apps and advertising) is estimated at $19bn in 2012, up from $0.7bn in 2008.
     
  • on 23 November 2012 in the USA – ‘Black Friday’, the day after the Thanksgiving holiday – 24% of all online shopping was from mobiles and tablets;  
     
  • mobile will have grown to 13% of all Internet traffic globally in 2012 and overtook desktop internet usage in India in May 2012.

Total Internet traffic continues to grow at a compound rate of around 40% per year and we keep running out of words to express the quantity of global digital data and having to invent new ones: according to IDC, there are now nearly 2 zettabytes (1021 bytes, or 1k exabytes; next up – yottabyte, or 1k zettabytes).  The real point is not so much how far we have come, but how far there is still to go. Although we talk routinely now of ‘big data’, the quantity of digital data is increasing by 50% each year so ‘biggest data’ is still a long way off. 


IT changes: (2) - nexus

If ‘scale’ is the first keyword for 2013, ‘nexus’ is the second – the interconnectedness of and interrelationships between the IT worlds of the Cloud, big data, social and mobile, in each of which we’re at a similarly early stage with the main developments still to come.  It is the potential and growth opportunities of rapidly increasing scale and nexus that set the scene for IT ‘re-imagining’ many areas daily personal and work life over the next few years, and explain the operating systems wars between iOS (Apple), Android (Google) and Windows (Microsoft); the smartphone patent wars, with their twenty or so antagonists; and the strategic squaring up between Amazon, Facebook, Google, Apple and Microsoft.


What does this mean for IT lawyers in 2013?

So, what does all this mean for technology lawyers in 2013? At the technical level, more than ever it means ‘learning to learn’ becoming our core skill, whether in-house or in private practice: synthesising different, fast developing and previously discrete black letter law areas as they coalesce around convergence that is driving increasingly disruptive change in business patterns. This synthesis is at two levels. First, keeping up with change in the legal pieces that are relevant to the sector you’re advising in – say, specific regulation for that sector, data protection, intellectual property, and maybe competition law as well as the usual commercial licence and service agreements; and secondly, putting those pieces together to solve the new business. There are a number of examples at the moment for this approach – and there will be many more as the ‘scale/nexus’ change ripples out to reach more and more of our personal and working lives.


Example 1: mobile payments.

The poster child for this approach is mobile payments.  Mobile commerce brings supply closer to the point where demand is created through the smartphone’s unique features - camera, ‘always on’ Internet connection, LBS (location-based services) and QR (quick response) codes. Where e-commerce extended buying from the shop and mail order to the desktop at home, m-commerce carries this evolution further by making the smartphone the point where demand is created and supply fulfilled outside the home, workplace and shop. 

M-payments are at the epicentre of m-commerce. They are at the point where four value chains - payments, mobile, retail and IT – intersect; new ecosystems of market participants - card schemes, mobile operators, retailers, device suppliers and service integrators - are developing; and new regulatory and contractual landscapes are emerging. 

Given the rapid uptake of m-payments in 2012, we’ll be seeing more of this area in 2013.  This means mastering a whole new set of jargon (nothing new in that) – the differences between online and mobile wallets, and NFC (near field communication) for example – as part of understanding the technology; exploring the new ecosystem and its contractual quirks (like much greater dependencies on things that happen outside the contractual relationship but elsewhere within the ecosystem); getting to grips with e-money and payment services regulation, PhonepayPlus regulation of premium rate phone services, data and consumer protection; and syncing them altogether in a pragmatic and commercial way.


Example 2: standards

A second example of this coalescence is legal issues around ‘network’, ‘compatibility’ or ‘interface’ standards - sets of technical specifications that provide common designs for products and processes and control interoperability in networked markets like the Cloud, big data, social media and mobile.  A standard setting organisation (SSO) and its members gain significantly in market influence where a standard they have adopted gain acceptability.  This is the background to the current Cloud standards battles:

  • around the ISO 27000 family of ISMS (information security and management systems) standards and in particular ISO 27018 (code of practice for data protection controls for public cloud computing services) where the debate centres around client visibility of client data; and
  • around the initiative launched in August 2012 by OASIS (the Organisation for the Advancement of Structured Information Standards) for an OData standard for data interoperability, and in particular Open XML.

The process of standard setting can put IP right holders into conflict with third party products and processes that comply with a standard whose subject matter is covered by their IP rights. This is especially the case for IP rich companies in the Cloud, mobile and data markets. The conflict is very often intermediated through the SSO’s IPR policy and the IP licensing requirements - ‘FRAND’ (fair, reasonable and non-discriminatory) or royalty-free for example – they mandate. The changes in scale and nexus mentioned above mean that we’ll be hearing a lot more about ‘standards law’ in 2013, and the complex contractual, IP and competition law issues they raise.


Example 3: IT and financial services regulation

A third example is the current wave of regulation breaking over the financial services industry.  Here, technology platforms, connectivity, software and market data are the heart, arteries and bloodstream of trading financial products and assets.  MiFID II (the Market in Financial Instruments Directive and Regulation due to be passed in 2013 and come into effect likely in 2014), will regulate much more closely how these platforms are operated and how benchmarks and market data are made available.  For most non-routine advice in this sector, an understanding of the technology and regulatory aspects will become increasingly central to lawyering technology deals.


Data law

An area where previously discrete legal areas have already come together is the rapidly developing field of data law – where IP rights, contractual techniques, confidentiality, data and consumer protection, communications regulation and specific sector regulation can now be said to have coalesced. Big data is a simply a game-changer, as the The Global Trends 2030: Alternative Worlds report makes clear. The changing picture is well captured by the FT in its 12 December 2012 article, ‘Data scientists take byte out of Mad Men’, where it reports that a new generation of advertising executives:

‘armed with millions of terabytes of data, schooled in creating sophisticated automated systems for buying and selling ads, searching for patterns in the data …’[3]

are replacing the Mad Men archetype. But it’s not all plain sailing, and the Global Trends report sets out the following as the big data’s biggest likely issues and impact:

“The greatest areas of uncertainty are the speed with which big data can be usefully and securely utilized by organizations

Opportunities for commercial organizations and governments to “know” their customers better will increase. These customers may object to the collection of so much data.”[4]

 
Expect legal disputes around data mining to proliferate in 2013 in the areas of IP rights (what IP is there in data and who owns it?), contract (did the usage terms say you could do this?) confidentiality (‘that information wasn’t public’) and unauthorised access (does web scraping infringe any rights of the ‘scrapee’?) as well as growing tensions around privacy and data protection.


Disputes

A number of widely reported IT glitches in 2012 have pointed up the consequences of system outages for users and suppliers alike.  In June, a faulty update to RBS’s systems caused it to provide a reported £125m for customer compensation.  In August, a trading system software error caused a $461m loss for US electronic trader Knight Capital.  Separate system faults on 5 October at Lloyds Banking Group and the Co-Operative Bank and on 16 October at ANZ Bank in Australia left customers without access to their accounts. The ‘flash crash’ of May 2010 – when the Dow jones inexplicably lost and then several minutes later regained 1000 or so points – continues to baffle and exercise regulators.  These outages and faults have put regulators on alert to IT operational risks and the spotlight on IT contracts and their liability clauses as the mechanism for allocating risk, and it’s likely we’ll see more cases like these progressing towards the courts in 2013.

Separately, as the Cloud – no respecter of national boundaries - both grows and fuels the move to utility computing and aggregating the elements necessary to process data (processing power, memory, storage, etc.), international jurisdiction and enforcement issues will pose increasing problems for regulators, national courts and legal systems in 2013.


Innovation vs regulation: growing tensions

More generally, 2013 will see tension building between technology and innovation on the one hand and regulation on the other.  Here the thesis is that technology in the office and at home is liberating work and personal interactions from generations of constraints, with the cloud, social media, new devices and new ways of creating and consuming content changing how we work and live.  But government, chastened and emboldened post-2008, is holding on to the steering wheel more and more tightly, as technology in business is regulated and consumers and personal data in the online world are protected as never before.

So, as government imposes tighter regulation and control across a broad range of sectors including energy, financial services, healthcare, professional services and transport, the  deployment of the technology that fosters business development is constrained. Expect to see more tensions in 2013 in the consumer law and data protection areas and as regulated entities seek to flow down their regulatory obligations to suppliers and trading partners in areas like record retention, compliance with policies, access and audit and regulatory liability.

 

Funding – beyond the banks

At the same time as ‘Shoreditch roundabout’ – the symbol of our thriving emerging technologies business community in the Cloud/social media/mobile/data world – approaches its third birthday with its funding aspirations undimmed, banks are facing tighter controls on their capital, forcing them to apply tougher rules to start-ups. Under the strapline ‘banks are changing - that means other providers of capital must step forward’, the Economist[5] exhorts a gradual but not glacial process to replacing the hole the banks may leave.  We are likely to see tentative steps in 2013 to alternative aggregation mechanisms for finance including crowdsourcing, asset-based lending agencies and an SME bonding market developing from the peer-to-peer lending model[6].


Taxation – the patent box

Furthering its bid to attract inward investment from technology companies, the UK launches its ‘patent box’ rules from 1 April 2013 enabling companies to apply a lower (10%) rate of Corporation Tax to profits from their patented inventions and certain other innovations. There’s a degree of serendipity about the timing of these new UK tax rules in view of the agreement on 8 and 10 December 2012 when the European Council and Parliament voted through a long fought over change to the EU patent protection system.  The new regime is likely to come into effect on 1 January 2014 and replace the current system (27 separate national patents across the EU) with a single unitary patent for all EU membr states (except Italy and Spain). What’s grabbed the headlines is the EU Commission’s promise that patent filing costs will be reduced by 87%, from €36,000 today to €4,725.


IT Lawyers in the boardroom?

Finally as IT continues its inexorable rise up the corporate agenda, pulling along IT law in its wake, the remit of senior in-house IT lawyers continues to broaden and deepen and this will be reflected we believe in more IT lawyers being appointed to the Board in 2013.

 

[1] http://globaltrends2030.files.wordpress.com/2012/11/global-trends-2030-november2012.pdf: Global Trends 2030: Alternate Worlds, p.ix (National Intelligence Council, December 2012) -

[2] Source: 2012 KPCB Internet Trends Year-End Update

[4] At page 84

[5] Non-bank finance in Europe – Embracing the Alternative, The Economist, 15 December 2012, p.14

[6] See for example ‘Beyond the Banks – Innovative ways to finance Britain’s small business, September 2011 (http://www.nesta.org.uk/library/documents/Beyondthebanksv7.pdf )